Qualified Foreign Institutional Investor (QFII) Definition

What Is a Certified International Institutional Investor (QFII)?

The Certified International Institutional Investor (QFII) is a program that permits specified licensed worldwide buyers to take part in mainland China’s inventory exchanges.

The Certified International Institutional Investor program was launched by the Individuals’s Republic of China in 2002 to supply overseas institutional buyers with the suitable to commerce on inventory exchanges in Shanghai and Shenzhen. Earlier than the launch of the QFII program, buyers from different nations weren’t allowed to purchase or promote shares on Chinese language exchanges as a result of nation’s tight capital controls.

Understanding Certified International Institutional Investor (QFII)

With the launch of the Certified International Institutional Investor (QFII) program in 2002, licensed institutional buyers had been allowed to buy and promote yuan-denominated “A” shares, that are shares of mainland China-based corporations. Nonetheless, specified quotas constrained overseas entry to those shares. The Chinese language authorities used these quotas to control the sum of money that licensed overseas buyers might spend money on China’s capital markets.

The QFII program quota was elevated from $30 billion to $80 billion in April 2012, a decade after this system launched. The quotas are granted by China’s State Administration of International Alternate (SAFE), and the quotas may be modified at any time in response to the nation’s present financial and monetary situations. In an effort to draw extra overseas funding, SAFE introduced it was eliminating quota restrictions in Sept. 2019.

The kind of investments that may be traded as a part of the QFII system consists of listed shares (however excludes foreign-oriented shares), treasury bonds, company debentures, convertible bonds, and different monetary devices as permitted by the China Securities Regulatory Fee (CSRC).

Certified International Institutional Investor (QFII) {Qualifications}

When the CSRC first launched the QFII program in 2002, it mandated that sure conditions needed to be met for buyers to be accepted into this system. The CSRC decided these {qualifications} by the kind of institutional investor who utilized for a license, resembling a fund administration firm or insurance coverage enterprise.

For instance, fund administration corporations needed to have at the least 5 years of asset administration expertise and at the least $5 billion of property underneath administration throughout the latest accounting 12 months. A specific amount of overseas foreign money, transferred and transformed to native foreign money, was additionally necessary for approval.

Beginning in 2016, the CSRC started a sequence of reforms to the QFII program with the objective of attracting extra overseas capital. The CSRC started to loosen investor {qualifications} for the QFFI program. In 2019, the CSRC introduced simplified guidelines that eliminated the property underneath administration (AUM) standards and years of expertise wanted by overseas buyers.

QFII vs. RQFII

In Dec. 2011, the CSRC began the Renminbi Certified International Institutional Investor (RQFII) program. Just like the QFII program, the RQFII program permits overseas buyers the chance to spend money on China’s inventory exchanges.

There are variations between the RQFII program and the QFII program, most of which should do with easing restrictions on buyers that made accessing the QFII program tough. For instance, QFII program contributors should convert their overseas foreign money into renminbi earlier than investing in Chinese language securities. RQFII contributors, nonetheless, don’t have to convert their foreign money and might make investments immediately in China’s home capital markets.

Particular Concerns

Previous to June 2018, overseas establishments invested in China’s inventory or bond markets by the QFII program might solely repatriate as much as 20% of its investments each month. Additionally, every time a QFII participant sought to maneuver cash out of China for the primary time, they had been prevented from doing so by a three-month “lock-up” restriction. Nonetheless, that has now modified.

As of mid-June 2018, China lifted each the 20% remittance ceiling and the three-month lock-up interval for all new and current QFII contributors. As an added incentive, China permits QFIIs to carry out hedging to handle overseas alternate dangers.

These new guidelines, together with the lifting of quota restrictions, are seen as China’s makes an attempt to make buying and selling of their bond and inventory markets extra broadly accepted amongst worldwide buyers. In 2019, China’s securities regulator introduced plans to finally mix the QFII and RQFII applications as a part of its reforms to extend overseas investor participation.